Weakening of the Dollar
Five years ago, the Dollar and the Euro were about the same in value. However, the picture is not the same anymore: One American Dollar is now worth about 0.71 Euros, or 0.49 British Pound. The Dollar has weakened by about 35 per cent against the Euro and by 25 per cent against the Japanese Yen. Thanks to the economic downturn in the U.S. made worse by the subprime crisis. Even against the currencies of other emerging economic powers like China and Japan, the dollar has been ebbing.
This may not be a pleasant time for Americans, with higher prices on almost everything imported from abroad. As the dollar loses value, it buys less and less from manufacturers in other countries. This effect is more pronounced when it comes to European imports: For instance, a pair of eyeglass frames from an European designer that cost about 150 euros — or $192 — in 2006 would now go for $211 because of the soft dollar.
The continued weakening of the dollar has begun to raise fears of the dollar losing its reserve currency status to another currency, the Euro. This fear may be well founded given the disposition of some countries to the proposition. To such proponents of adopting another currency in place of the dollar as the reserve currency, temporary protections like artificially low prices and contracts in American currency can't go on forever if the dollar keeps weakening.The subprime mortgage financial crisis of 2007 was a sharp rise in home foreclosures, which started in the United States during the fall of 2006 and became a global financial crisis within a year. The crisis began with the bursting of the housing bubble in the U.S. and high default rates on "subprime", and other adjustable rates. The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions have reported losses of approximately U.S. $130 billion as of January 25, 2008. Due to a form of financial engineering called securitisation, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS).
Individual and institutional investors holding MBS faced significant losses, as the value of the underlying mortgage assets and payment streams declined and became difficult to predict.The number of people getting kicked out of their homes for missing loan payments is rising.
Dollars’ Share of Global Reserves
The dollar's share of global foreign-exchange reserves fell to a record low of 63.8 percent in the third quarter as demand for U.S. assets waned after the collapse of the U.S. housing market, according to International Monetary Fund data. It accounted for 65 Per cent three months earlier. The euro's share rose to 26.4 per cent from 25.5 per cent. IMF quarterly figures go back to 1999, the year the euro was introduced. The U.S. currency has dropped 11 per cent against the euro and 13 per cent against the yen in the past year. It has declined in five of the past six years. Soros made $1 billion in 1992 betting against the pound, forcing the British government to abandon a peg to a basket of European currencies. He was also the biggest financial backer of the failed effort to deny President George W. Bush a second term in office. The euro has gained 55 per cent against the dollar since Bush entered theWhite House on Jan. 21, 2001.
From the 1980s we had the belief in the magic of the marketplace, and the authorities were so successful that they started to believe in this market fundamentalism,'' he said. “That's gone too far.'' In times of crisis, ``they suspended the rules and they bailed out the banks. That created an asymmetric incentive system, a moral hazard, that allowed the expansion of credit.'' Rising defaults on U.S. subprime mortgages sparked a rout in the credit markets last August, leading banks to cut money for consumer lending, hurting the U.S. economy's main engine. The Fed yesterday lowered its benchmark rate in an emergency move for the first time since 2001 after stock markets tumbled from Hong Kong to London amid signs the world's largest economy is sliding into recession. Soros has used past appearances in Davos to predict the dollar's decline.
In January 2004, he said the U.S. currency would drop for a third year. It then fell 7 percent, according to a Federal Reserve trade-weighted index of the currency.Comments by ExpertsAn American commentator, Michelle Tsai opines that global companies will see their U.S. businesses shrink — not because they are selling fewer products, but because $1 million in sales is worth less than it used to be. Businesses will need to recoup their losses at some point by raising prices.
According to him, if oil companies had to raise prices for that reason, the effects would be felt throughout the U.S. economy. Eventually, if too many things start costing just a bit more, he argues that the U.S. could have inflation hit her economy.Billionaire American investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency. “The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate at the World Economic Forum in Davos, Switzerland.
Now the rest of the world is increasingly unwilling to accumulate dollars.''Stephen Roach, chairman of Morgan Stanley in Asia, said in Davos that while he remains a “dollar bear,'' the U.S. currency's slide may be reversed in the first half of this year as other economies in Asia and Europe are hurt by the U.S. slowdown. A Nigerian economist, Mr. Bismark Rewane, said the possibility of the U.S. Dollar losing its reserve currency status is remote. According to him, since oil is priced in Dollar, it will continue to enjoy the reserve currency status.Rewane who is the Chief Executive Officer of Economic Derivatives, said adopting another currency will not solve any problem since there is nothing fundamentally wrong with the reserves accumulated by nations.Specifically, he said the call by Venezuela that the Dollar should be rejected as the reserve currency should be understood within the context of the disagreement between the U.S. and the Venezuelan authorities.
This may not be a pleasant time for Americans, with higher prices on almost everything imported from abroad. As the dollar loses value, it buys less and less from manufacturers in other countries. This effect is more pronounced when it comes to European imports: For instance, a pair of eyeglass frames from an European designer that cost about 150 euros — or $192 — in 2006 would now go for $211 because of the soft dollar.
The continued weakening of the dollar has begun to raise fears of the dollar losing its reserve currency status to another currency, the Euro. This fear may be well founded given the disposition of some countries to the proposition. To such proponents of adopting another currency in place of the dollar as the reserve currency, temporary protections like artificially low prices and contracts in American currency can't go on forever if the dollar keeps weakening.The subprime mortgage financial crisis of 2007 was a sharp rise in home foreclosures, which started in the United States during the fall of 2006 and became a global financial crisis within a year. The crisis began with the bursting of the housing bubble in the U.S. and high default rates on "subprime", and other adjustable rates. The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions have reported losses of approximately U.S. $130 billion as of January 25, 2008. Due to a form of financial engineering called securitisation, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS).
Individual and institutional investors holding MBS faced significant losses, as the value of the underlying mortgage assets and payment streams declined and became difficult to predict.The number of people getting kicked out of their homes for missing loan payments is rising.
Dollars’ Share of Global Reserves
The dollar's share of global foreign-exchange reserves fell to a record low of 63.8 percent in the third quarter as demand for U.S. assets waned after the collapse of the U.S. housing market, according to International Monetary Fund data. It accounted for 65 Per cent three months earlier. The euro's share rose to 26.4 per cent from 25.5 per cent. IMF quarterly figures go back to 1999, the year the euro was introduced. The U.S. currency has dropped 11 per cent against the euro and 13 per cent against the yen in the past year. It has declined in five of the past six years. Soros made $1 billion in 1992 betting against the pound, forcing the British government to abandon a peg to a basket of European currencies. He was also the biggest financial backer of the failed effort to deny President George W. Bush a second term in office. The euro has gained 55 per cent against the dollar since Bush entered theWhite House on Jan. 21, 2001.
From the 1980s we had the belief in the magic of the marketplace, and the authorities were so successful that they started to believe in this market fundamentalism,'' he said. “That's gone too far.'' In times of crisis, ``they suspended the rules and they bailed out the banks. That created an asymmetric incentive system, a moral hazard, that allowed the expansion of credit.'' Rising defaults on U.S. subprime mortgages sparked a rout in the credit markets last August, leading banks to cut money for consumer lending, hurting the U.S. economy's main engine. The Fed yesterday lowered its benchmark rate in an emergency move for the first time since 2001 after stock markets tumbled from Hong Kong to London amid signs the world's largest economy is sliding into recession. Soros has used past appearances in Davos to predict the dollar's decline.
In January 2004, he said the U.S. currency would drop for a third year. It then fell 7 percent, according to a Federal Reserve trade-weighted index of the currency.Comments by ExpertsAn American commentator, Michelle Tsai opines that global companies will see their U.S. businesses shrink — not because they are selling fewer products, but because $1 million in sales is worth less than it used to be. Businesses will need to recoup their losses at some point by raising prices.
According to him, if oil companies had to raise prices for that reason, the effects would be felt throughout the U.S. economy. Eventually, if too many things start costing just a bit more, he argues that the U.S. could have inflation hit her economy.Billionaire American investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency. “The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate at the World Economic Forum in Davos, Switzerland.
Now the rest of the world is increasingly unwilling to accumulate dollars.''Stephen Roach, chairman of Morgan Stanley in Asia, said in Davos that while he remains a “dollar bear,'' the U.S. currency's slide may be reversed in the first half of this year as other economies in Asia and Europe are hurt by the U.S. slowdown. A Nigerian economist, Mr. Bismark Rewane, said the possibility of the U.S. Dollar losing its reserve currency status is remote. According to him, since oil is priced in Dollar, it will continue to enjoy the reserve currency status.Rewane who is the Chief Executive Officer of Economic Derivatives, said adopting another currency will not solve any problem since there is nothing fundamentally wrong with the reserves accumulated by nations.Specifically, he said the call by Venezuela that the Dollar should be rejected as the reserve currency should be understood within the context of the disagreement between the U.S. and the Venezuelan authorities.
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